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Every time regional banks sell off, the doomsayers come out of the woodwork. They may say things like "the 2023 banking crisis isn't over," or "another shoe is about to drop."

But if you were waiting for that shoe, that means you missed one of the quietest rallies in the financial sector. Regional banks recently hit their highest level since early 2022. The same sector that supposedly teeters on the edge of collapse has been steadily climbing for months.

The 2023 Crisis: A Quick Recap

In March 2023, the U.S. regional banking sector faced its most severe stress since 2008. The culprit was a toxic combination of rapid Fed rate hikes, massive unrealized losses on long-dated bonds, and dangerous concentrations of uninsured deposits.

The dominoes fell fast. On March 8, crypto-focused Silvergate Bank announced voluntary liquidation as the cryptocurrency market imploded around it.

Two days later came the big one. Silicon Valley Bank collapsed after a textbook bank run. Silicon Valley Bank had sold bonds at a loss of $1.8 billion to cover withdrawals, which sparked panic among depositors. Billions in uninsured funds fled within hours. Regulators seized the bank. It became the third-largest bank failure in U.S. history.

March 12 brought Signature Bank down. Regulators cited systemic risk as they closed the $110 billion institution, which had heavy exposure to cryptocurrency and real estate.

The government scrambled to contain the damage. Regulators invoked a systemic risk exception to guarantee all deposits at Silicon Valley and Signature, even uninsured ones. The Fed launched the Bank Term Funding Program to provide emergency liquidity.

On March 16, a coalition of major banks injected $30 billion into First Republic Bank, hoping to stabilize it. That effort bought time, but not salvation. On May 1, First Republic failed anyway. The FDIC seized it and sold the pieces to JPMorgan Chase. It became the second-largest bank failure in American history.

The Numbers Were Staggering

4 failures. Over $500 billion in combined assets. That exceeded the inflation-adjusted total of all 2008 bank failures.

Yet there was no systemic meltdown. Swift intervention contained the damage. The broader financial system absorbed the shock and moved on. That was all nearly three years ago.

What the Market Is Actually Telling You

Here's where things get interesting for traders who pay attention to price action instead of headlines. Regional banks have been quietly recovering. The sector chart tells a story that contradicts the persistent doom narrative.
 

Look at that trajectory. This is not the price action of a sector on the verge of collapse. When a genuine crisis is brewing, you see deteriorating technicals. Lower highs. Failed rallies. Distribution patterns. You see smart money heading for the exits.

That's not what's happening here. Regional banks are making new multi-year highs.

Why This Matters for the Broader Market

This isn't just a banking story. It has direct implications for small-cap investors. The Russell 2000 has significant exposure to financials. Regional banks make up a meaningful chunk of that exposure. When regional banks rally, small-caps often benefit.

The strength in regional banks helps explain why the Russell 2000 has been performing well recently. These sectors are interconnected. If you've been avoiding small-caps because you're worried about banking contagion, you might want to reconsider that thesis. The market is telling you something different than the headlines.

The Bottom Line

The 2023 regional banking crisis was real. It was serious. 4 major institutions failed in a matter of weeks. But it ended.

Markets process information and move forward. Prices reflect reality, not old fears. The regional banking sector has spent nearly three years healing, restructuring, and rebuilding confidence. Traders who ignored the recovery because they were waiting for another crisis missed substantial gains. The lesson here applies far beyond banking.

Watch what the market does, not what commentators say it should do. Price action is the ultimate truth teller.

The regional banks have spoken. The traders paying attention to price action have been rewarded. Those still waiting for a crisis that already ended have been left behind.

I'll be watching how blockchain and cryptocurrency legislation develops. There could be additional tailwinds for this sector depending on how regulatory clarity unfolds. I'll keep you posted.

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